A wealth-based Pell Grant?

A supplemental Wealth-Based Pell Grant could make college more accessible and affordable to students from low-wealth families and equalize debt-free college access across racial groups, according to a new white paper by researchers at the Higher Education, Race, and the Economy (HERE) Lab at the University of California, Merced, with support from The Institute for College Access and Success (TICAS). The Free Application for Federal Student Aid (FAFSA) currently determines how much federal financial aid (grants, loans, and work study) students can receive based primarily on their household income and size. Although the FAFSA asks applicants to report on several kinds of assets that build wealth—such as investment funds, education savings accounts, and income-producing property—they are incorporated in the overall calculations in a minimal way. An applicant’s Expected Family Contribution (EFC), replaced by the Student Aid Index (SAI) in the updated FAFSA, determines Pell Grant eligibility and is primarily shaped by parental income. 

The HERE Lab researchers propose that students from low-wealth households—calculated using existing student FAFSA data—receive a supplemental Wealth-Based Pell Grant totaling $7,395, the current Pell Grant maximum award per year as of 2024. That supplemental grant would be layered onto any other Pell Grant students received based on their eligibility. Researchers project the such a Wealth-Based Pell Grant would reach around 2.8 million students if it were awarded to all families who reported having less than $500 in wealth. 

“This is effectively a double Pell, but it’s a really targeted double Pell,” Laura Hamilton, a professor of sociology at UC Merced and co-author of the white paper, tells Inside Higher Ed. “Students from all races are going to benefit from [wealth-based Pell], but it is going to disproportionately support Black and Latinx students because they are more likely to be low wealth.”

Related: Report: Colleges increasingly unaffordable for Pell Grant recipients >

Wealth a key factor in college enrollment, completion

Wealth has a significant impact on who can afford to enroll in college and complete a college degree. Students from wealthier households are more likely to attend and stay in college relative to their peers, benefitting from access to the resources needed to focus on their studies, rather than work long hours to pay for college.

In comparison, many students from low-wealth families are also from low-income backgrounds and may struggle to meet college costs, which can negatively affect their ability to stay in school and complete their programs, the researchers say. Some students from low-wealth households that have moderate incomes face difficulties qualifying for Pell Grants, which are typically awarded to low-income students. About a quarter of FAFSA filers from low-wealth backgrounds receive no Pell Grant award. As a result, they may receive less aid than they really need. Students from low-wealth households also take out more student loans than wealthier families with similar incomes, and are more likely to struggle to repay their loans. 

Wealth is distributed more unequally than income, especially by race. Although the average Black and Latine household earns around half as much as the average white household, Black households have only about 15% as much wealth, and Latine households around 20% as much as white households.

Related: How does wealth shape postsecondary outcomes? >

Addressing the wealth gap

According to the HERE Lab white paper, offering the Wealth-Based Pell Grant for students with $500 or less in household wealth would double the share of Black students who attend their first year of college debt-free from 27% to 50% and eliminate the racial gap in the percentage of students who attend debt-free. Increasing the household wealth cutoff from $500 to $1,000 and $2,000 would produce the most support for Black and Latine FAFSA filers relative to white filers.

Some experts have questioned the proposal’s practicality and the cost of implementing a supplemental Pell Grant—$17.4 billion, according to HERE researchers. However, others say the proposal places much-needed attention on wealth disparities as a significant barrier to college enrollment and retention, especially for underserved students.

“We need to make sure that the most at-risk individuals are able to access higher education so that they can change that trajectory for their families and for themselves,” Tanya Ang, executive director of Today’s Students Coalition, tells Inside Higher Ed. “The long-term impact is significant, and so if something like this is going to help make that happen, then it’s definitely a conversation that needs to be had.”